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Premature Tax Recovery by Inland Revenue Officer under Section 140 of the Income Tax Ordinance, 2001 declared unlawful --- Lahore High Court, Lahore

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Premature Tax Recovery by Inland Revenue Officer under Section 140 of the Income Tax Ordinance, 2001 declared unlawful --- Lahore High Court, Lahore

Islamabad 05-06-2024: The premature recovery of tax u/s 140 of Income Tax Ordinance 2001 beyond the limit of 10% declared unlawful by the Lahore High Court, Lahore. The Honourable Bench presided over by Mr. Justice Raheel Kamran decided [WP No. 34736 of 2024] filed by the petitioner against the coercive recovery of tax from the petitioner’s bank account despite of pendency of appeal.

In the petition under Article 199 of the Constitution of Pakistan, the petitioner challenges the recovery of funds by the Inland Revenue Officer from his bank accounts at National Bank of Pakistan and Bank Al-Falah. This recovery was based on a notice dated 31.05.2024, issued under Section 140 of the Income Tax Ordinance, 2001. The petitioner argues that this recovery is premature as it was conducted before the adjudication of their appeal regarding the tax liability.

The Court referenced several case laws to elaborate the principle that tax cannot be recovered from a taxpayer before an appeal is adjudicated by at least one appellate body, such as the Appellate Tribunal Inland Revenue. This principle is supported by a number of case laws including “Messrs Pak Saudi Fertilizers” and “Z.N. Exporters (Pvt.) Ltd”.

It is observed by the Court that the section 140(1) of the Ordinance allows the Commissioner to recover tax by issuing a notice to any person holding money for the taxpayer. However, a proviso to this section prohibits such recovery if the taxpayer has filed an appeal under Section 127 and the appeal is still pending, provided further that the taxpayer has paid 10% of the disputed tax amount. In this case, the petitioner's appeal is pending, and the petitioner has not been asked to pay the 10% amount. The petitioner expressed readiness to pay this amount. The court found that the recovery beyond 10% of the tax liability, as determined in the amended assessment order, is unlawful.

Consequently, the court partially allowed the writ petition, directing the respondents to reimburse or credit the recovered amount back to the petitioner's bank accounts within 20 days, after deducting 10% of the tax liability.